IN THE UNITED STATES DISTRICT COURT

FOR THE EASTERN DISTRICT OF PENNSYLVANIA

STATE FARM MUTUAL AUTOMOBILE : CIVIL ACTION

INSURANCE CO., et al., : NO. 05-5368

:

Plaintiffs, :

:

v. :

:

ARNOLD LINCOW, et al., :

:

Defendants. :

M E M O R A N D U M

EDUARDO C. ROBRENO, J. JUNE 16, 2011

I. INTRODUCTION

On March 26, 2009, judgment was entered in favor of

Plaintiffs State Farm Mutual Automobile Insurance Company and

State Farm Fire and Casualty Company (“Plaintiffs”) against

several defendants. (See doc. no. 593.) Pursuant to 28 U.S.C. §

636(b)(3), the Court referred “all matters concerning execution

of the judgment” to Chief Magistrate Judge Rueter. (See doc. no.

843.) Asset discovery was undertaken, and one of the defendants,

Arnold Lincow (“Defendant”), subsequently filed claims for

exemption under 42 Pa. Cons. Stat. § 8124(b)(1)(ix). These

claims seek to exempt from execution of judgment two separate

individual retirement accounts (“IRAs”) which contain funds that

have been held in various other accounts. On August 24 and
August 25, 2010, Judge Rueter conducted an evidentiary hearing on

Defendant’s claims. After inviting the parties to submit

proposed findings of facts and conclusions of law, Judge Rueter

issued a memorandum and order granting Defendant’s claims for

exemption. Plaintiffs object to Judge Rueter’s ruling.

For the reasons set forth below, Plaintiffs’ objections

will be overruled in part and sustained in part. 

II. BACKGROUND

Defendant, in accordance with 42 Pa. Cons. Stat. §

8124(b)(1)(ix), seeks exemption from execution of Plaintiffs’

judgment as to: (1) an AXA Equitable Accumulator IRA (the “AXA

Account”); and (2) a TD Ameritrade IRA (the “TD Account”). 

Plaintiffs argue that Defendant did not adequately demonstrate

his entitlement to the exemption. Defendant, of course,

disagrees. However, while predicated on the sufficiency of the

evidence presented before Judge Rueter, the parties’ disagreement

stems from their divergent interpretations of section 8124(b)(1). 

That statute provides that the following funds are exempt from

the execution of a judgment:

(ix) Any retirement or annuity fund provided for under

section 401(a), 403(a) and (b), 408, 408A, 409 or 530

of the Internal Revenue Code of 1986 . . ., the

appreciation thereon, the income therefrom, the

benefits or annuity payable thereunder and transfers

and rollovers between such funds. This paragraph shall

not apply to:

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. . .

(B) Amounts contributed by the debtor to the

retirement or annuity fund in excess of $15,000

within a one-year period. This shall not include

amounts directly rolled over from other funds

which are exempt from attachment under this

subparagraph.

42 Pa. Cons. Stat. § 8124(b)(1)(ix). 

Plaintiffs contend that section 8124’s “provided for

under” language refers to tax qualification under the Internal

Revenue Code provisions set forth in the statute, and that a

party seeking the exemption must therefore prove that the

relevant funds have consistently been qualified. See id.

(exempting funds “provided for under [certain sections of the

Internal Revenue Code] . . . and transfers and rollovers between

such funds” (emphasis added)); In re Willis, 07-11010, 2009 WL

2424548, at *11 (S.D. Fla. Bankr. Aug. 6, 2009) (“Under the IRC,

IRA funds rolled over from a non-qualified account retain

non-qualified status.”). Defendant, on the other hand, urges

that “‘provided for under’ is broader than ‘qualified under’ and

thus a non-qualified plan is exempt unless or until the IRS makes

a determination that a plan is disqualified.” (Def.’s Resp. to

Pls.’ Objections ¶ 24.) 

III. DISCUSSION

A. Standard of Review

Broadly speaking, the Federal Magistrates Act

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“distinguishes between two categories of matters that a district

judge can refer to a magistrate judge.” Nat’l Labor Relations

Bd. v. Frazier, 966 F.2d 812, 816 (3d Cir. 1992). Namely,

pretrial matters and dispositive matters. See id.; 28 U.S.C. §

636(b)(1)(A) (stating a magistrate judge may “determine any

pretrial matter . . . except a motion for injunctive relief, for

judgment on the pleadings, for summary judgment, to dismiss or

quash an indictment or information made by the defendant, to

suppress evidence in a criminal case, to dismiss or to permit

maintenance of a class action, to dismiss for failure to state a

claim upon which relief can be granted, and to involuntarily

dismiss an action”). Pretrial matters, which magistrate judges

may decide, are reviewed under a clearly erroneous standard. See

28 U.S.C. § 636(b)(1)(A). Dispositive matters, by contrast, may

only be resolved by way of a report and recommendation which is

reviewed de novo. Id. § 636(b)(1)(B).

Here, Judge Rueter resolved Defendant’s claims of

exemption under a referral invoking the additional duties clause

in section 636(b)(3). See id. § 636(b)(3) (“A magistrate judge

may be assigned such additional duties as are not inconsistent

with the Constitution and laws of the United States.”). Under

these circumstances, the appropriate standard of review is

determined by reference to whether the case more closely

resembles a pretrial matter or one of the dispositive matters in

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the statute which can be so characterized by virtue of their

“preclusive effect on the parties.” Frazier, 966 F.2d at 816. 

Notwithstanding Defendant’s attempts to analogize the parties’

dispute to a routine pretrial discovery matter, this case plainly

calls for de novo review because resolution of Defendant’s claim

will finally adjudicate the parties’ rights and obligations with

respect to the funds for which Defendant seeks exemption. Thus,

the Court applies de novo review to Judge Rueter’s memorandum and

order. 

B. Application

As noted, Plaintiffs argue that Defendant failed to

introduce sufficient evidence to support Judge Rueter’s decision

because Defendant failed to show that the funds in the two IRAs

were continuously tax qualified.1 See Alliance Home of Carlisle

v. Bd. of Assessment Appeals, 919 A.2d 206, 225 (Pa. 2007)

(noting that, as a general matter, there is an “affirmative

burden” on the party seeking an exemption “to prove entitlement

to exemption”); Navistar Fin. Corp. v. Hrobuchak, No. 08-959,

2009 WL 483123, at *1-2 (M.D. Pa. Feb. 25, 2009) (indicating that

1 In addition, Plaintiffs object to (1) David Pozzi’s

testimony regarding the AXA Account’s tax qualification; (2)

Judge Rueter’s refusal to apply an adverse inference to missing

documentary evidence pertaining to the AXA Account; and (3) Judge

Rueter’s alleged lack of ruling concerning excess contributions

to the AXA Account. Given the Court’s disposition, it is

unnecessary to address these contentions at this time.

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the party claiming an exemption under section 8124(b)(1)(ix) must

prove an entitlement to it). Defendant, acknowledging that he

had the “burden to prove that his IRA accounts fall within the

purview of the Exemption Statute,” (Def.’s Resp. to Pls.’

Objections ¶ 6), argues he is not required to demonstrate tax

qualification to prove that the exemption applies. Instead,

according to Defendant, he met his burden of demonstrating that

the exemption applies because (1) the funds are kept in an

account provided for in one of the sections of the Internal

Revenue Code listed in section 8124; and (2) there is no evidence

of a determination that the account is (or that prior accounts

from which the funds derived were) disqualified.

1. Legal Standard for Section 8124’s Statutory

Exemption

After acknowledging the parties’ competing statutory

interpretations, Judge Rueter found it unnecessary to

definitively resolve this underlying legal dispute because he

found that “Lincow sufficiently proved that the IRAs are exempt

under the statute, and State Farm did not prove that an exception

to that exemption is applicable.” State Farm Mut. Auto Ins. Co.

v. Lincow, No. 05-5368, 2010 WL 4909582, at *2 (E.D. Pa. Nov. 30,

2010); see also id. at *8. While the Court appreciates Judge

Rueter’s careful recitation of the facts and efforts to resolve

the case on less contentious grounds, the Court disagrees with

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Judge Rueter’s conclusion that resolving the parties’

disagreement over the statute’s meaning is unnecessary to

disposition of Defendant’s claims. This inquiry, after all, is

intimately tied to the parties’ respective burdens of proof. If

Plaintiffs are correct, Defendant would have to introduce

evidence supporting the conclusion that the funds in the IRAs

were continuously tax qualified. See 42 Pa. Cons. Stat. §

8124(b)(1)(ix); In re Willis, 2009 WL 2424548, at *11. If

Defendant is correct, by contrast, qualification would be

presumed absent any evidence submitted by Plaintiffs to the

contrary.

Unfortunately, there is scant caselaw addressing

whether tax qualification is a prerequisite to exemption under

section 8124(b)(1)(ix). Defendant points to First Options of

Chicago, Inc. v. Kaplan (In re Kaplan), 162 B.R. 684 (Bankr. E.D.

Pa. 1993), in which the bankruptcy court opined that “the

Pennsylvania legislature intentionally avoided the use of the

federal terms ‘qualified’ and ‘plan’” in section 8124 and noted

that “[section 8124] appears to have been drafted to include even

plans which are not technically ‘tax qualified’ within its

scope.” Id. at 696-97. Plaintiffs, on the other hand, ask the

Court to interpret the statute according to the rules of

statutory construction whereby “[w]ords and phrases shall be

construed according to rules of grammar and according to their

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common and approved usage.” 1 Pa. Cons. Stat. § 1903. Applying

this mode of interpretation, Plaintiffs urge, the term “provided

for under” in section 8124 naturally refers to the conditions set

forth in the relevant Internal Revenue Code sections being met. 

The Court agrees with this latter construction.

While the meaning of “provided for under” is somewhat

ambiguous, cf. Gladwell v. Reinhart (In re Reinhart), 362 F.

App’x 919, 922-23 (10th Cir. 2010) (certifying a similar question

to the Utah Supreme Court), reference to the term’s common and

approved usage provides helpful guidance. Generally speaking,

the word “provided” refers to a condition being met. See

Webster’s II New Riverside University Dictionary 948 (1984). 

Since the statute lists a series of provisions in the Internal

Revenue Code under which the funds at issue must be “provided

for,” the Court concludes that the statute requires the

conditions set forth in those sections to be met for the

exemption to apply. After all, if a plan were not required to

meet the Internal Revenue Code’s conditions for qualification in

the listed sections, there would be no need for the statute to

refer to them at all. 

Moreover, notwithstanding the Kaplan court’s suggestion

that the statute is broad enough to exempt non-qualified funds,

its holding that the exemption applied was based on the fact that

the plan at issue had previously been found to be qualified by

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the IRS. See Kaplan, 162 B.R. at 697-98. Further, it

conditioned its ruling on the plan’s continuing tax

qualification. See id. Thus, as the district court reviewing

the bankruptcy court’s decision explained, the bankruptcy court’s

holding in Kaplan was “in substance, based upon two IRS

determinations that the Plan was tax qualified.” Kaplan v. First

Options of Chi., Inc., 189 B.R. 882, 890 (E.D. Pa. 1995). And,

as the reviewing court clarified in construing the same statute,

a plan “should be tax qualified in order to be exempt from the

bankruptcy estate.” Id.; see First Options of Chi., Inc. v.

Kaplan, 198 B.R. 91, 93 (E.D. Pa. 1996) (“[T]he language of the

Pennsylvania exemption statute required a plan to be

tax-qualified in order for it to be found exempt under th[e ]

statute.”).

For these reasons, the Court concludes that section

8124(b)(1)(ix)’s exemption is contingent on tax qualification and

that Defendant therefore bore the burden of demonstrating that

the funds in the IRAs were qualified. With this in mind, the

Court turns to assess the conclusions reached with respect to the

two accounts at issue.

2. The AXA Account

As to the AXA Account, Judge Rueter concluded that “the

evidence supports the conclusion that the funds in the AXA

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[Account] have been held in qualified plans and rolled over,

numerous times, into the AXA [Account].” Lincow, 2010 WL

4909582, at *6. Judge Rueter found as much because (1)

Defendant, the trustee of the plans, testified that he believed

the plans were qualified; (2) there was no evidence the IRS took

any action against the IRA or that tax benefits were otherwise

disallowed; (3) the officials who prepared tax returns testified

that there were no irregularities with respect to the plan; and

(4) Plaintiffs failed to show that the accounts were not

qualified. See id. at *4, 6. 

While the Court will not second-guess credibility

determinations made by Judge Rueter following an evidentiary

hearing, Judge Rueter appears to have placed the burden on

Plaintiffs to demonstrate that the funds were not qualified. 

See, e.g., id. at *4 (“State Farm has failed to show that such a

break in the chain occurred.”); see also id. at *6 (“No evidence

was presented that the tax documents for the plans were not

filed.”). Because section 8124’s exemption is contingent on tax

qualification, this was an error; it was Defendant’s burden to

show that the funds in the AXA Account were qualified, not

Plaintiffs’ burden to prove that they were not. See supra Part

III.B.1. 

Nevertheless, because the Court does not have the

benefit of having heard the testimony firsthand and because Judge

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Rueter’s decision appears to have largely rested on a

misapprehension of the burden of proof, the Court will remand

this matter for further proceedings. On remand, Judge Rueter

should determine whether the evidence presented before him

sufficed to satisfy Defendant’s burden of establishing the

exemption’s applicability to the AXA Account,2 and shall prepare

a report and recommendation for the Court to that effect.

3. The TD Account

With respect to the TD Account, Judge Rueter considered

and rejected Plaintiffs’ claims that the funds were not qualified

due to certain excess contributions Defendant allegedly made. 

See Lincow, 2010 WL 4909582, at *8. Judge Rueter did so by

examining the records produced, and crediting Defendant’s

testimony concerning whether he made the contributions at issue. 

See id. (“This notation supports Lincow’s testimony that he did

not make a contribution in this amount . . . .”); id. (“Lincow

testified that he did not make any contributions to this IRA in

1990. . . . The evidence shows that Lincow did not make a

contribution of stock to this IRA in 1990.”). Having carefully

reviewed the evidentiary record, the Court agrees with Judge

2 Of course, it is within Judge Rueter’s discretion to

determine whether to consider additional evidence or to prepare

the report and recommendation based on the evidence and testimony

from the August 2010 evidentiary hearing.

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Rueter that the evidence showed the funds were qualified and that

the alleged disqualifying contributions were not made.

Plaintiffs’ objections are therefore overruled with

respect to the TD Account.

IV. CONCLUSION

For the reasons explained above, Plaintiffs’ objections

will be overruled in part and sustained in part. Judge Rueter’s

memorandum will be vacated to the extent it orders the AXA

Account exempt from execution, and Judge Rueter is respectfully

directed to prepare a report and recommendation concerning

disposition of the exemption claimed for the AXA Account. An

appropriate Order will follow.

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